In light of the economic pressures on low-income households, leading food corporations are revamping their product lines and marketing strategies. This pivot aims to accommodate the changing spending habits as consumers face financial constraints.
What Happened: Companies such as Kraft Heinz (NASDAQ: KHC) and Conagra Brands (NYSE: CAG) are altering their offerings in response to the decreased spending by Americans dependent on government assistance, Reuters reported on Monday. These changes are a reaction to the persistent price increases over recent years.
Low-income consumers, typically earning below $35,000 a year, are now more inclined to cook from scratch or reduce their purchases, affecting sales volumes for major food and beverage producers. Dollar Tree (NASDAQ: DLTR) CEO Richard Dreiling emphasized the difficulties posed by reduced SNAP benefits during a recent earnings call. At Circle K stores, part of Alimentation Couche-Tard, there has been a notable 40% decline in food stamp sales year-over-year, as stated by CEO Brian Hannasch.
Conagra is set to introduce budget-friendly Banquet chicken patties in late May, marking a departure from the premium-centric approach prevalent during the pandemic.
Now food companies must "make sure they are attracting the value buyer back into the fold," said Duleep Rodrigo, U.S. consumer and retail sector leader at KPMG.
"They can't get volume without this key segment."
Adjustments are also being made by Hershey (NYSE: HSY), PepsiCo (NASDAQ: PEP), and Coca-Cola (NYSE: KO) in their product sizes and promotions to provide better deals. Nissin Foods is leveraging promotions to encourage stockpiling, while food giants like Kraft Heinz, WK Kellogg (NYSE: K), and Kellanova are increasing discounts, according to a Jefferies research note.
Conagra's CEO Sean Connolly spoke of a strategy involving more regular, modest discounts to attract consumers. Chicago resident Charsetta Reed, for example, is turning to Dollar Tree for more economical grocery options. Conagra's canned meats and corn-based snacks are witnessing a rise in sales, as are Jif peanut butter products from J.M. Smucker (NYSE: SJM), a cost-effective protein choice.
Why It Matters: The strategic shift by food companies comes against a backdrop of growing financial strain on American households. Food has become the third-largest household expense, with the average American household spending about $6,080 monthly on a $94,003 income, based on 2022 data from the U.S. Bureau of Labor Statistics.
Moreover, 73% of Gen Z have altered their spending habits due to rising prices, underscoring the widespread impact of inflation across demographics. These economic conditions are prompting food companies to reassess and adapt their strategies to maintain sales and meet the needs of cost-conscious consumers.